Executive Summary / Key Takeaways

• AI Infrastructure Dominance: Celestica is strategically transforming into a high-value product company, leveraging its Hardware Platform Solutions (HPS) to become a leading provider of AI infrastructure, particularly in high-speed networking and liquid-cooled rack solutions for hyperscalers and digital natives.
• Record Profitability & Growth: The company achieved record adjusted operating margins of 7.4% in Q2 2025, driven by robust revenue growth (21% year-over-year in Q2 2025) and a favorable mix from its high-margin HPS segment, which now accounts for 43% of total revenue.
• Technological Leadership: Celestica's deep expertise in advanced networking (400G, 800G, 1.6T switches), liquid cooling, and full rack orchestration provides a significant competitive moat, enabling it to secure new, complex design wins and gain market share in critical AI/ML compute programs.
• Strong Outlook & Capital Discipline: Management has raised its 2025 annual outlook, projecting $11.55 billion in revenue and $5.50 adjusted EPS, alongside a $400 million free cash flow target, reflecting confidence in sustained demand and efficient capital allocation.
• Strategic Expansion & Resilience: Through targeted R&D investments, capacity expansions in key geographies, and the acquisition of NCS Global for services, Celestica is enhancing its end-to-end solutions and global network resilience to capitalize on multi-year AI-driven data center investments.

The Evolution of an AI Infrastructure Powerhouse

Celestica Inc. has undergone a profound transformation, evolving from its roots as a traditional electronics manufacturing services (EMS) provider into a sophisticated Original Design Manufacturer (ODM) and, increasingly, a product company (OEM) within its Connectivity Cloud Solutions (CCS) segment. This strategic pivot, underpinned by over a decade of sustained investment in research and development, design, engineering, and intellectual property, has positioned Celestica at the forefront of the burgeoning AI infrastructure market. The company, headquartered in Toronto, Canada, now delivers comprehensive supply chain solutions to a discerning clientele of original equipment manufacturers, cloud-based providers, hyperscalers, and innovative digital native companies across its Advanced Technology Solutions (ATS) and CCS segments.

The current industry landscape is defined by an insatiable demand for high-performance computing, driven by the rapid proliferation of artificial intelligence and machine learning applications. This secular tailwind fuels massive investments in data center infrastructure, creating a fertile ground for companies like Celestica that can deliver complex, high-value solutions at scale. Celestica's strategic response has been to deepen its technological capabilities and expand its service offerings, moving beyond component manufacturing to provide integrated, end-to-end systems.

Technological Edge: The Core of Celestica's Moat

Celestica's competitive advantage is fundamentally rooted in its differentiated technology and engineering prowess, particularly within its Hardware Platform Solutions (HPS) portfolio. The company's expertise spans critical areas of AI infrastructure, including advanced networking switches, AI/ML compute, liquid cooling, and full rack orchestration.

At the heart of its networking capabilities are its high-speed Ethernet switches. Celestica has successfully transitioned its entire 400G customer base to 800G technology, securing a larger market share in the newer generation based on early wins. In Q2 2025, 800G networking volumes reached parity with 400G, with management anticipating further acceleration of 800G adoption throughout the year. The company is also at the cutting edge of the next generation, having received Tomahawk 6 (1.6T) samples in June 2025 and successfully bringing up the first system within days. Several new 1.6T programs are expected to begin generating revenue in the latter half of 2026 and into 2027, with the ramp-up paced by silicon availability. This early engagement and rapid prototyping capability underscore Celestica's technological leadership.

A key differentiator is Celestica's advanced liquid cooling technology, which is becoming increasingly vital for the high-density, high-power demands of AI/ML compute and networking hardware. The company's ability to implement complex liquid cooling solutions at scale, coupled with its mastery of automation in facilities like Thailand, is a unique capability that sets it apart. This expertise extends to full rack orchestration, as evidenced by a significant HPS win with a leading digital native company. This program involves the design, manufacturing, and services for a fully AI-optimized rack solution, incorporating Celestica's proprietary compute, 1.6T switch designs, and rack-level cooling and connectivity. This comprehensive offering leverages over a decade of the company's intellectual property development.

Celestica's commitment to innovation is further demonstrated by its substantial R&D investments. The company is spending approximately $75 million on R&D this year and is comfortable increasing this to $100 million in 2025. With a team of nearly 900 skilled design engineers, Celestica is actively engaged in developing cutting-edge solutions, including custom ASIC designs optimized for performance and power efficiency in targeted AI applications. These investments directly contribute to Celestica's competitive moat, enabling higher Average Selling Prices (ASPs), improved margins, and a stronger market position in the rapidly evolving AI infrastructure landscape.

Financial Performance: A Story of Sustained Momentum

Celestica's strategic transformation and technological leadership have translated into exceptional financial performance. The company closed 2024 with $9.65 billion in revenues and an adjusted EPS of $3.88, representing impressive year-over-year growth of 21% and 58%, respectively. This was accompanied by a 100 basis point improvement in its adjusted operating margin.

The momentum accelerated into 2025, with Q2 2025 revenues reaching $2.89 billion, a 21% increase compared to Q2 2024. Adjusted EPS for the quarter was $1.39, marking a 54% year-over-year increase and setting a new company record. The adjusted operating margin also hit an all-time high of 7.4% in Q2 2025. This robust performance was largely driven by the CCS segment, where HPS revenues surged 82% year-over-year to $1.2 billion, accounting for 43% of total company revenue. The higher mix of HPS revenue and strong productivity propelled CCS segment margin to 8.3% in Q2 2025, up from 7% in Q2 2024. Overall gross profit increased by 46% to $371 million in Q2 2025, with gross margin expanding to 12.8% from 10.6% in the prior-year period, primarily due to higher volumes and a favorable mix.

Celestica's operational efficiency is also evident in its working capital management. Cash cycle days were 66 in Q2 2025, reflecting strong inventory turns and effective management of cash deposits. The company has consistently generated positive free cash flow for over five years, with $120 million in Q2 2025 and $214 million year-to-date. This strong cash generation supports continued investment in growth and shareholder returns.

Competitive Positioning and Strategic Responses

Celestica operates in a competitive landscape alongside major players like Flex Ltd. (FLEX), Jabil Inc. (JBL), and Sanmina Corporation (SANM), all offering electronics manufacturing and supply chain solutions. While these competitors possess broad global footprints and efficient manufacturing capabilities, Celestica differentiates itself through its deep engineering expertise and integrated, high-value offerings, particularly in complex AI infrastructure.

In the critical area of AI server market share, Celestica is actively gaining ground with its largest customers, attributing this success to strong execution and the ability to build highly complex products at scale. The company's focus on proprietary compute and HPS solutions, where there is significant design content, positions it favorably against competitors who may primarily offer high-volume, lower-margin EMS services. Celestica's unique capabilities in liquid cooling and rack orchestration, especially in its Thailand facility, are difficult to replicate, providing a distinct advantage in the rapidly evolving data center market.

The company's strategic shift is also evident in its customer engagement. Hyperscale customers are increasingly adopting a disaggregated model, preferring to procure solutions from partners like Celestica rather than relying solely on traditional OEMs. Furthermore, a new class of "digital native" customers is emerging, building and operating their own data centers based on open architecture and disaggregated models. Celestica is actively targeting these new customers, viewing them as a significant source of growth for its white-boxing and advanced technology offerings. The recent acquisition of NCS Global Services LLC in April 2024 further enhances Celestica's service capabilities, including IT infrastructure and asset management, which are expected to be accretive to overall company margins.

While Celestica's customer base includes a concentration with its top two CCS customers representing 31% and 13% of Q2 2025 revenue, management expresses comfort with this, citing diversification across multiple programs with these key clients. This strategic approach mitigates risk while maximizing "share of wallet" with leading technology innovators.

Outlook and Guidance: A Multi-Year Runway for Growth

Celestica's management has expressed strong confidence in its future trajectory, raising its 2025 annual financial outlook. The company now anticipates revenues between $11.55 billion, reflecting a 20% year-over-year growth, and non-GAAP adjusted EPS of $5.50 per share, a 42% increase from 2024. The adjusted EPS outlook implies a robust non-GAAP operating margin of 7.4%. Furthermore, the free cash flow outlook for 2025 has been raised to $400 million, underscoring the company's strong earnings conversion.

For Q3 2025, Celestica projects revenue between $2.875 billion and $3.125 billion, representing 20% growth at the midpoint, with adjusted EPS anticipated between $1.37 and $1.53. The CCS segment is expected to drive this growth, with communications revenue projected to increase in the low 60s percentage range, fueled by continued demand for networking switches and accelerating 800G program ramps. While the Enterprise end market is expected to see a mid-20s percentage decrease in Q3 due to a technology transition in an AI/ML compute program, the latest generation program is beginning to ramp, signaling a strengthening of enterprise volumes in the second half of 2025 and into 2026.

The ATS segment is expected to remain approximately flat year-over-year in 2025. The Industrial business is showing signs of returning growth in the second half, supported by new program ramps. The Capital Equipment business, after strong growth in the first half, is expected to moderate in the second half due to some demand pull-forward, but full-year growth is anticipated to be in line with market rates. Profitability in the A&D business is improving due to a strategic decision not to renew a margin-dilutive program, even as overall revenues in A&D may be lower year-over-year.

Management's long-term outlook remains highly positive, with strong hyperscaler demand expected to continue into the first half of 2026. The company has the capacity to support annual revenue growth north of 20% and is actively engaged in discussions for new programs expected to ramp over the next 12 to 18 months and extend through 2026 and beyond.

Risks and Considerations

Despite the compelling growth story, investors should be mindful of certain risks. Global economic uncertainties, including trade conflicts and geopolitical tensions, could impact demand and supply chains. While Celestica has largely mitigated tariff impacts through exemptions and customer pass-throughs, the dynamic policy environment remains a factor. Customer concentration, particularly within the CCS segment, presents a risk, although Celestica's diversification across multiple programs with its largest customers helps to manage this. The inherent variability of technology transitions in AI/ML compute programs can lead to temporary revenue fluctuations, as seen in the Enterprise segment. Furthermore, while Celestica's global footprint offers resilience, reliance on contracted carriers and potential inflationary pressures on operating costs could impact profitability if not fully offset.

Conclusion

Celestica Inc. is executing a powerful transformation, leveraging its deep technological expertise and strategic partnerships to become a critical enabler of the AI revolution. The company's HPS platform, with its market-leading high-speed networking and advanced liquid cooling solutions, is driving record profitability and robust revenue growth. With a strong balance sheet, disciplined capital allocation, and a clear roadmap for expanding its "share of wallet" with hyperscalers and digital natives, Celestica is exceptionally well-positioned for sustained long-term growth. While macroeconomic uncertainties and customer concentration warrant attention, the company's consistent operational excellence and technological differentiation provide a compelling investment thesis for those seeking exposure to the enduring secular tailwinds of AI infrastructure development. Celestica's journey from EMS provider to an OEM-like product company, fueled by innovation and strategic foresight, suggests a bright future for shareholders.